The RBI Governor D. Subbarao’s remark on Wednesday that non-banking financial companies (NBFCs) will be eventually kept out of deposit-taking has caused apprehension in the NBFC sector.
V.P. Nandakumar, executive chairman of Manappuram Finance Ltd, one of the top gold-loan NBFCs with 2,200 branches across the country, says the move will cripple the sector. “If the RBI thinks that NBFCs should not raise funds through deposits, the companies will have a really tough time,” he told Business Line .
“Without access to this avenue of fund-raising, the companies will be totally dependent on the banks,” he said. “Relying on just one credit channel will be a huge risk.” Moreover, since small NBFCs did not enjoy credit rating, bank finance would be inaccessible to them. The entire NBFC sector was concerned about the RBI governor’s statement, he noted.
Skewed market share
He pointed out that there were roughly 3,000 NBFCs in the country, but hardly 400 were active.
Of these, the top 20 accounted for 80 per cent of the business. The majority of NBFCs were non-deposit-taking. The current uncertainty over whether the NBFCs would be allowed to continue to access non-convertible deposits (NCD) was a major cause of worry, particularly after the Rao Committee report. The NCD was a key channel of receiving public deposits; it also helped broad-base borrowing, thus limiting risks.
Financial inclusion
Nandakumar claimed that NBFCs had a big role in fostering the government’s policy of financial inclusion. The formal banking channel was still unavailable or intimidating for the average depositor-borrower from two-thirds of the country’s villages. It was the NBFCs that catered to their needs. “NBFCs, compared to the banks, have much deeper last-mile reach and very low operating cost and hence they are able to promote financial inclusion much better than banks,” he said.
In Nandakumar’s view, ideally, the RBI should allow NBFCs to raise one-third of their funds from retail, another one-third from the banks and the rest from commercial papers and institutions.